Applicability Of Keynesian Theory

Introduction

The Keynesian thesis is not appropriate to all socio-economic groups. It is applicable
to sophisticated democratic capitalist fiscal systems. Schumpeter has defined as follows: “Practical
Keynesianism is a seedling which cannot be transplanted into foreign soil; it dies
there and becomes poisonous before it dies. But left in English soil this seedling
is a healthy thing and promises both fruit and shade. All this applies to every bit
of advice that Keynes ever offered.”

Keynesian Postulations and Underdeveloped Countries

The Keynesian economics depends on the subsequent postulations which restricts its appropriateness
to underdeveloped countries.

Keynesian thesis depends on the subsistence of cyclical redundancy which happens
during recession. It is due to insufficiency in effective demand. Redundancy can
be eliminated by an enhancement in the level of valuable demand. But the nature
of redundancy in an under developed nation is quite diverse than that in a developed
nation.

In such fiscal systems redundancy is unremitting somewhat than recurring. It is not
caused by the insufficient effectual demand but consequently due to insufficiency in
capital resources.

Besides unremitting redundancy, underdeveloped nations suffer from camouflaged redundancy.
Keynes was apprehensive with the elimination of in-deliberate redundancy and the difficulty
of fiscal unsteadiness. So he did not refer to camouflaged redundancy and its solution.

The remedy for the unremitting and camouflaged redundancy is fiscal growth to which
Keynes had no concentration at all. Therefore, the Keynesian postulations of recurring
redundancy and fiscal instability are hardly tenable in an underdeveloped fiscal system.

The Keynesian financial system is a short period analysis in which Keynes takes “as
given the subsisting techniques and volume of obtainable worker, the subsisting
volume and excellence of obtainable tool, the subsisting skill, the degree of competition,
the tastes and habits of the consumer, the disutility of diverse forces of labour
and of the performances of supervision and organisation as well as social structure.”

The development economies
nevertheless is a long period study in which all the basic aspects believed by Keynes
as given, change over time.

The Keynesian Thesis depends on the postulations of closed financial system. But
underdeveloped nations are not closed financial systems. They are open financial
systems in which overseas trade acts a leading role in developing them. Such financial
systems foremost depends on the exports of farming and industrial inputs and the
imports of capital goods. Therefore, the Keynesian financial system has little
significance to underdeveloped nations in this respect.

The Keynesian thesis presumes a surplus supply of labour and other complementary
resources in the financial system. This study refers to a recession fiscal system
where “the industries, machines, managers and workers as well as consumption
habits are all there only waiting to resume their temporarily suspended functions
and roles.”

But in under developed financial systems there is permanent suspension of fiscal activity.
Fiscal activity is static, capital, skills aspect supplies and fiscal infrastructure
are woefully lacking.

Additionally, it can be deduced from the above presumption that labour and capital
are redundant concurrently as per Keynesian study. When labour is redundant capital
and tool are also not entirely employed or there is surplus capacity in them.

But this is not so under developed nations. When labour is redundant there is no query
of capital being unutilised for the reason that there is acute deficiency of capital
equipment.

The Keynesian Instruments and Underdeveloped Nations

Therefore the assumptions on which the Keynesian thesis depends are not appropriate
to the conditions prevailing in under developed nations.

Effective Demand

Redundancy is due to insufficiency of effective demand and to get over it, Keynes suggested
the stepping up of consumption and non-consumption outlays. In an under developed nation,
nevertheless, there is no in-deliberate redundancy but camouflaged redundancy. Redundancy
is not due to insufficiency of harmonizing resources.

The concept of effective demand is appropriate to that financial system where redundancy
is due to surplus thrift. In such a condition the antidote lies in stepping up the
levels of consumption and investment through assorted monetary and fiscal instruments.
But in under developed financial system earnings levels are extremely low, the inclination
to consume is very huge and cutbacks are almost zero.

All labours to enhance money earnings through monetary and fiscal instruments will,
in the non-presence of harmonizing resources lead to price inflation. Here the difficulty
is not one of raising the effective demand but one of raising the levels of employment
and per capita earnings in the context of fiscal growth.

Inclination to Consume

One of the significance equipment of Keynesian fiscal is the propensity to consume which
emphasises the correlation amidst consumption and income. When earnings enhances, consumption
also enhances but by less than the addition in income. This behaviour of consumption
further explains the rise in saving as earnings hikes.

In under developed nations these correlations amidst earnings, consumption and thrift
do not grasp. People are very deprived and with their earnings enhancement, they expend
more on consumption goods for the reason that their inclination is to meet their unfulfilled
needs. The marginal inclination to consume is very huge in such nations, whereas the
marginal inclination to save is very less.

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